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CNBC's Scott Cohn reports that the Department of Justice has reached a $3 billion settlement that involves the reimbursement of certain drug prices and questions of drug quality at a former plant in Puerto Rico.
By David Ingram, Reuters
(UPDATED 3:54 p.m. Eastern) WASHINGTON -- GlaxoSmithKline Plc agreed to plead guilty to misdemeanor criminal charges and pay $3 billion to settle what government officials on Monday described as the largest case of healthcare fraud in U.S. history.
The agreement, which still needs court approval, would resolve allegations that the British drugmaker broke U.S. laws in the marketing and development of pharmaceuticals.
GSK targeted the antidepressant Paxil to patients under age 18 when it was approved for adults only, and it pushed the drug Wellbutrin for uses it was not approved for, including weight loss and treatment of sexual dysfunction, according to an investigation led by the U.S. Justice Department.
The company went to extreme lengths to promote the drugs, such as distributing a misleading medical journal article and providing doctors with meals and spa treatments that amounted to illegal kickbacks, prosecutors said.
In a third instance, GSK failed to give the U.S. Food and Drug Administration safety data about its diabetes drug Avandia, in violation of U.S. law, prosecutors said.
The misconduct continued for years beginning in the late 1990s and continued, in the case of Avandia's safety data, through 2007. GSK agreed to plead guilty to three misdemeanor criminal counts, one each related to the three drugs.
Guilty pleas in cases of alleged corporate misconduct are exceedingly rare, making GSK's agreement especially unusual.
The agreement to settle the charges "is unprecedented in both size and scope," said James Cole, the No. 2 official at the U.S. Justice Department. He called the action "historic" and "a clear warning to any company that chooses to break the law."
The settlement includes $1 billion in criminal fines and $2 billion in civil fines.
GSK said in a statement it would pay the fines through existing cash resources. The company announced a $3 billion charge in November related to legal claims.
Chief Executive Officer Andrew Witty said the misconduct originated "in a different era for the company" and will not be tolerated. "I want to express our regret and reiterate that we have learnt from the mistakes that were made," he said in a written statement.
The GSK settlement surpasses what had been the largest criminal case involving a drugmaker in U.S. history. In 2009, Pfizer Inc agreed to pay $2.3 billion to settle allegations it improperly marketed 13 drugs.
The cases follow a trend of U.S. cracking down on how pharmaceuticals are sold, in part because of the rising cost of providing drugs through government programs.
Part of civil fines address allegations that, from 1994 to 2003, GSK underpaid money owed to Medicaid, the healthcare program for the poor run jointly by states and the federal government. The company had an obligation to tell the government its "best prices" but failed to do so, prosecutors said, and $300 million of the settlement will go to states and other public health authorities.
A portion of the $2 billion in civil fines may go to a group of whistleblowers who contributed to the government's investigation and who are eligible to share in the recovery under the False Claims Act. Cole said the amount has not been determined.
As part of the settlement, GlaxoSmithKline agreed to new restrictions by the U.S. government to prevent the use of kickbacks or other prohibited practices. The inspector general of the U.S. Department of Health and Human Services will oversee the "Corporate Integrity Agreement" for five years.
The company will not be able to compensate its salesmen based on sales goals for territories. It was also required to change its executive compensation program to allow the company to "claw back" certain pay for those engaged in misconduct.
Witty said GSK's U.S. unit has "fundamentally changed our procedures for compliance, marketing and selling. When necessary, we have removed employees who have engaged in misconduct."
Prosecutors have not brought criminal charges against any individuals in connection with the GSK case, although the settlement expressly leaves open that possibility. Cole declined to comment on the possibility of future charges.
Almost exactly a year ago GSK agreed to pay nearly $41 million to 37 states and the District of Columbia in an unrelated case about substandard manufacturing processes at a Puerto Rico factory.
In 2010, the company took a $2.4 billion charge in connection with Avandia to settle claims from patients.
GSK's shares were positive on the New York Stock Exchange on Monday, up 1.6 percent to $46.29 at 1400 EDT.
The case is U.S. v. GlaxoSmithKline LLC, U.S. District Court for the District of Massachusetts, No. 12-cr-10206.
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